Ahead of the GST Council’s meeting on November 9 and 10, subsuming all real estate related taxes under GST is a major talking point. Here is a look at the nitty gritty of the same

NEW DELHI: The real estate sector is expected to feature in the November 9, 2017 GST meet. The government has been hinting that the sector can be considered to be brought under GST. Then all individual taxes would be subsumed into the GST. Or will it?

Practically, can all central, state and local taxes on real estate be subsumed into GST? The finance minister has implied that it can be considered and is expected to one of the major talking points in GST Council’s meeting on November 9 and 10. Real estate is unique because it is an immovable asset and is also bound by state laws.

What is Goods & Services: Under the Central Goods and Services Tax Act, 2017 (CGST Act), goods and services have been defined as:

Goods: Section 2(52) of the CGST Act: “Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of land which are agreed to be severed before supply or under a contract of supply;

Services: Defined under section 2 (102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged

Schedule III of the CGST Act which states the activities or transactions which shall be treated neither as a supply of goods nor a supply of services includes “Sale of land and Sale of building”(except under-construction buildings which are deemed as supply of service) at Sr. no 5 of this Schedule.

Immovable asset

In real estate, since land is an immovable asset, the industry has been given a 33 per cent abatement on the 18 per cent GST. Therefore, the effective charge on the sector is now 12 per cent as against the listed 18 per cent. During the period of construction, when the developer collects money from the consumers, pays different vendors and service providers and gets the asset constructed, the under construction product is considered a service and therefore, comes under the purview of GST. It also gets input credit from many of the 267 allied industries. Once the input credit starts flowing in there would be clarity on how much the prices can drop by.

Anuj Puri, Chairman, Anarock Property Consultants Pvt Ltd, estimates that the quantum of input credit should come to roughly 2-3 per cent. Therefore, the effective GST impact should be 9-10 per cent. As it stands today, ongoing projects are in different stages of completion and the input credit may not all come back to the developer. However, if developers don’t pass on the input credit benefit to customers, it can be construed as profiteering.

GST can’t be applicable to land as it is an immovable asset and that is why there is an abatement of land value provided to developers in the GST on real estate. There is no GST levied on completed projects which are again considered immovable assets.

Sudip Mullick, Partner, Khaitan & Co says, “The Schedule III note implies that sale of land or buildings are neither goods nor services. If the Government decides to include land and building under GST, firstly, they will have to delete the entry from Schedule III and bring it under Schedule II which deals with activities which can be treated as goods or services.”

Other taxes like stamp duty and property taxes are local taxes and there is as yet no means of subsuming them. If the government decides to include real estate in GST then there has to be a way of compensating the states for this loss of revenue. With 12 per cent GST, 6 per cent stamp duty, 1 per cent land under construction, a labour cess and various other taxes, currently, the sector is already burdened with many invisible taxes. If all of them are subsumed into GST then the rate will have to go up.

Inflationary pressure

Niranjan Hiranandani, President Naredco (National Real Estate Development Council), says that GST has put inflationary pressure of 3.5 per cent on affordable and 5.5 per cent on ongoing luxury housing. “The underlying principle of GST was to keep it revenue neutral.” There are 31 or 32 taxes on affordable housing. No country in the world has such high taxation on affordable housing. He suggests that there should be no tax at all on affordable housing till 2022. Let industry get the input credits so that it becomes profitable and there is ample stock in five years to rationalize rates.

Hiranandani maintains that bringing real estate under GST will make the sector more transparent and hidden charges will come to the forefront.

Current tax rates

Getamber Anand, Chairman, Confederation of Real Estate Associations of India (Credai), estimates that taxes account for 10 per cent of the cost of real estate. Hiranandani says “About a third of the cost of housing can be attributed to taxation.” PWC estimates the tax burden @18 per cent. Essentially, the taxes are so many and varied across states, that one figure is difficult to compute today. Naredco has made a comprehensive list of taxes that are applicable to the sector. (see Box)

Stamp duty

Can stamp duties be subsumed in GST? It is a state tax and the total tax amount comes solely to the state. GST is a central tax and needs to be shared with the Centre. If this issue is discussed at the GST council meeting in Kolkata, then there has to be consensus among the states. Past High Court orders on stamp duty also need to be revisited.

Advantages

If GST is applied on land and immovable property, the buyer has to pay one tax at uniform rate across states (eg stamp duty varies state wise).

The industry benefits in the long run, if the timing is right. Prajakta Menezes, Principal Associate, Khaitan & Co says, “In the short term this sector is already grappling due to demonetization (purchases were deferred by buyers), RERA and GST. One more amendment may aggravate the shock in the short term.”

Implemented efficiently and effectively, one GST for real estate across the country is the way to go. How the states will agree to this and what changes have to be made to compensate them for loss of revenue remain subjects of debate. However, both, the industry and the consumer, seem to be beneficiaries of a more transparent way of taxation

http://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.png00adminhttp://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.pngadmin2017-11-08 15:30:202017-11-08 15:31:32GST in Real Estate: Is one sector and one tax possible?

This fourth quarter saw a slowdown in real estate sales in Chennai with a 55% drop in housing units sold year-over-year.

CHENNAI: The fourth quarter of the calendar year is usually the most hectic time when it comes to real estate sales in Chennai. With the festive season, fat Diwali bonuses, the auspicious day of Dhanteras, real estate developers usually see a lot of prospective home buyers queuing up.

This fourth quarter, however, saw a massive slowdown in real estate sales in Chennai with a 55% drop in housing units sold year-over-year.

In Q4 of 2016, only 757 units were sold compared to 1,673 units in the same period the previous year. Number of project launches in the city fell to 58 from 93 in the year ago period.

“Demonetisation has definitely impacted sales in Chennai. The cash crunch along with cyclone Vardah were a downer when it came to people taking decisions on property,” said Sridhar Srinivasan, managing director, Chennai, Cushman & Wakefield.

However, this is part of an overall trend in Chennai real estate market, which got exacerbated with the cash ban. For instance, the fourth quarter of 2013 saw a high of 2,554 units being sold. After which there has been a decline to 1,629 units in 2014 to 1,673 in 2015.

However, Cushman & Wakefield expects the phenomena to be temporary and won’t last beyond the new two quarters.

As to the “cash” or “black money” component of real estate sales, Srinivasan said this has not impacted mid-segment sales. “Middle-level housing units have seen a high impact. The high-end and luxury segment, which use a higher component of cheque vs cash, saw lesser impact. We are expecting this trend to continue for the next two-three quarter,” he said.

Mid-level housing units saw a 21% dip to 662 units in the fourth quarter of 2016, compared to 840 sold units in the comparable quarter last year. High-end units, however, saw sales nearly double to 91 in Q4, from 49 in the year-ago.
Another reason as to why transactions are being hit is because of stamp duty and registration fee that need to be paid at offices. Given the role of the “cash” component in property deed clearances, demonetisation has definitely thrown a wrench in the works.
For the full-year, the number of projects in 2016 dipped 24% to 57 from 75 last year. The number of housing units also dipped 21% to 6,419 from 8,174.

Ashok Nagar has witnessed a rapid transformation in the last few years and it has become a major hub in the city today.

Situated in the southern part of Chennai, Ashok Nagar is a prime residential locality.

There are numerous schools, hospitals and religious institutions which makes it an ideal destination for home buyers. It is one of the well connected neighbourhood, with KK Nagar on the west, Vadapalani to the north and Said a pet to the south. Besides, areas like T Nagar, Koyambedu and West Mambalam are also in close proximity to Ashok Nagar.

Navin, the director of Navin’s, says, “One main advantage of Ashok Nagar is its location. It ticks the right boxes for most of the people. Physical and social infrastructure is fully in place. There is no reason as to why a buyer would not look towards investing in a property here. It is visible from the fact that the inventory keeps moving at a quicker pace here and there are no unsold inventories in this market. Most of the new projects are bought right away, while the upper-mid premium segment is doing well here.”

Echoing his views, Prabhakaran R, a real estate consultant says, “Connectivity provides a major boost to this area. One of the most prominent most prominent metro stations in Chennai is here. Besides, it is well connected to Koyambedu via the metro. Ashok Nagar is also well-connected to several parts of Chennai through MTC buses. Since there are many schools here and in the adjoining areas, many investors are choosing Ashok Nagar to settle down.”

Being a well-developed area, there aren’t huge land parcles available here for development but that doesn’t take away the options available to buyers. “Most of them are working class professionals and are choosy about the projects that suit their needs. Presently, the market is doing well and there are many new projects coming up. Land parcels are not available due to the overall development of this locality. However, there are many residential projects and one is spoilt for choice,” says Prabhakaran.

Speaking about the retail development in Ashok Nagar, Navin says, “A lot of small retail outlets, boutiques and restaurants are coming up in this place, though the main focus remains on the residential segment.’

The cost of buying a residential property would range from 11,000 to 13,000 per sq ft. The rental price varies from 20,000- 25,000 and 35,000 – 40,000 for a 2-BHK and 3BHK apartment respectively.

Infrastructure and connectivity seem to be the key points making Ashok Nagar a winner, so much so that it is soon becoming a self-sustained neighbourhood. “It is connected to the southern and western parts of Chennai. Broad roads, good infrastructure and connectivity are the main supporting factors. It is becoming an established place like Anna Nagar where we know that everything is available under the same roof,” says Kumar G, manager of Aroshree Realty.

“More development plans should be in place for Ashok Nagar. The government should take efforts to revive the real estate segment here. This will ensure a better urban planning, he says.

Shweta V, Times Property, The Times of India, Chennai

http://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.png00adminhttp://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.pngadmin2016-08-15 17:24:152016-07-29 17:26:00Ashok Nagar has witnessed a rapid transformation in the last few years

Keeping these points in mind will help you execute a smooth negotiation process with the seller.

The dictionary definition of negotiation is ‘a dialogue between two or more people or parties with the intention of reaching a beneficial outcome’. When applied to real estate, it would be ‘a dialogue between a buyer and a seller with regards to a property intended to benefit both when a deal is struck’. The buyer should be able to buy his house within his budget or at the best possible price, while the seller builder should be able to earn a decent profit on selling his product even after giving discounts and other benefits to the buyer.

Rational negotiation or senseless haggling?

There is serious negotiation and there is senseless haggling. Bargaining with a grocer for a discount of few rupees is very different from negotiating for a property. The latter involves a large investment grade asset and requires a carefully thought-out strategy which accounts for the abilities of a seasoned veteran negotiator on the other side of the table. There also needs to be sufficient acceptance room for alternate results to the discussion.

When to negotiate and when not to

Before embarking on the course of serious negotiation with a real estate seller, a buyer needs to do thorough homework. This would include a background check of the builder seller, the prevailing market conditions, the pros and cons of one’s own budget and the qualities and condition of the property one intends to buy. If it is a new project, the builder is likely to be comfortable with his prospect of striking a good deal on the units, as there are many potential buyers in the fray. In such a case, one can negotiate but not by much, and the price reduction may not completely be to one’s expectations.

The best deal

Negotiation has definite merits but a lot depends on the external factors. The most defining factor is whether it is a buyer’s or a seller’s market. In a seller’s market, there are fewer sellers and more buyers, so the chances of getting hefty discounts are minimal. In a buyers’ market, there are fewer buyers, so the probability of extracting major discounts and attractive deals from the developers active there is high.

How to negotiate

There is a science behind the art of negotiation, which can only be perfected after practicing it a few times. Let’s have a look at the basic procedure of negotiation:

Research: Do diligent research about the project. The launch price, current market price of the property along with prices of contemporary properties in the market should be looked into.

Opening Gambit: It is important to know that no developer will react favourably if one starts negotiating by quoting an unrealistically low price compared to the offered price. An average accept able figure is 15 percent lower than the quoted selling price.

What To Avoid: Never put down the property or point out its flaws while negotiating. Rather than focussing on any negative news or shortcomings of the project, focus on the positive aspects and how you can be a serious customer for the builder.

When To Stop Negotiating: Once a price which is close to one’s budget is arrived at, one should stop bargaining. Even if the final price arrived at is not the one which one has in mind, the builder may offer additional benefits not available in the public offer which can add very good value to the deal.

Before entering negotiation, study whether the builder seller is willing to bargain at all. Get a clear picture of his financial situation with the help of informed consultants and brokers. A brokers’ job is to get the best deal not only for the buyers or sellers, but for the sake of their own commissions and repeat business.

Ashwinder Raj Singh – CEO residential services, JLL India

Source: Times Property, The Times of India, Chennai

http://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.png00adminhttp://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.pngadmin2016-08-13 17:20:562016-07-29 17:22:44How to master the art of negotiation

1. Ensure that it is duly registered and the stamp duty prescribed by the State has been paid

2. Signatures and photographs of the principal and power agent must be affixed.

3. Check whether the principal has a valid title to the property and that his/her name is reflected as owner in government revenue records.

4. Verify whether a sale clause is mentioned in the POA

5. For availing loans based on a POA, check whether the power agent has the authority to sign loan documents and can create an equitable mortgage in favour of banks/financial institutions on behalf of the principal.

6. Ensure that as on the date of execution of any document based on the POA, the POA is in force and the principal is alive.

7. In case a POA is granted by a builder (private or public limited company) to their employee, ensure that a certified copy of supporting board resolution authorising the power agent is produced. In case the builder is a partnership firm, check whether all the partners have authorised in writing any specific partner or their employee to act as power agent.

8. If the POA is being executed abroad, ensure that it is either notarised or signed before Indian Consulate officials and then duly adjudicated within 120 days from the date of execution of the said POA.

9. Always check the availability of the original duly registered GPA.

10. You must also check whether the description of the property (schedule of property) is in order.

The writer is a Chennai-based advocate and author of ‘Property Registration, Land Records and Building Approval Procedures Followed in Various States in India’

Source The Hindu

http://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.png00adminhttp://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.pngadmin2016-08-12 03:02:272016-08-02 03:08:07Precautions to be observed in a POA

Builders may no longer be able to take homebuyers for a ride as the state government has started the process to ratify Real Estate Act which will have provisions to set up a regulatory authority and penalise promoters delaying housing projects.The Tamil Nadu government is likely to constitute a sub-committee to formulate rules for notifying the ambitious act eight days after the centre unveiled draft rules for the Real Estate (Regulation and Development) Act 2016.

State governments must frame rules to ratify the central act within six months after the act came into force on of May 1. The legislation aims at protecting the interests of buyers, stringent action against promoters delaying housing projects, single window clearance and establishing Real Estate Regulatory Authority to redress the grievances of consumers.

A high-level meeting of top officials representing various bodies attached to the state housing and urban development department was convened on July 2. The meeting discussed the recent draft rules of the union ministry of housing and urban poverty alleviation, official sources said. “The discussion was around the draft rules and provisions like establishing real estate regulatory authority. A sub-committee is likely to be formed for framing rules of the act,” a senior housing official said.

Another official said, “We would be framing the rules by October 31”. However, the Tamil Nadu government has not yet decided about the quantum of penalty to be levied on defaulting promoters.

The draft rules released by the Centre on June 24 say developers must pay 11.2 percent interest to buyers for delay in handing over apartments and homes. Any violation like increase in the size of apartments, change in layout and construction of additional towers in a project without taking consent from 70% of the allottees can lead to cancellation of registration. Though the Centre’s draft rules covers only five Union Territories without legislatures, states are at liberty to modify it or draw their own rules.

Meanwhile, CREDAI Chennai chapter chairman Suresh Krishn has sought the government to define the term “existing projects” and clear the air on date from which projects would come under the purview of the act.

Yogesh Kabirdoss, The Times of India, Chennai

http://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.png00adminhttp://360propertymanagement.in/wp-content/uploads/2016/10/logo-1.pngadmin2016-07-31 17:01:592016-07-29 17:07:00Builders may no longer be able to take homebuyers for a ride